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Stocks Fall on Income Data; Treasuries Gain, Yen Strengthens
Aug. 30 (Bloomberg) -- U.S. stocks fell, erasing most of the previous day's gain, and Treasuries rallied as a slower- than-estimated increase in American personal incomes fueled concern the economic rebound is slowing. The yen strengthened against all 16 major peers after policy makers stopped short of direct steps to halt the currency's recent gains.
The Standard & Poor's 500 Index dropped 1.5 percent to 1,048.92 at 4 p.m. in New York. Treasury 10-year note yields slid 12 basis points to 2.53 percent. The yen appreciated 0.8 percent to 84.56 versus the dollar, heading for a fourth straight monthly advance. Oil declined below $75 a barrel, while copper rose to a fourth-month high.
Benchmark equity indexes extended three weeks of losses as the 0.2 percent growth in U.S. personal incomes spurred concern that an improvement in consumer spending won't last. The retreat trimmed a 1.7 percent rally in the S&P 500 triggered on Aug. 27, when Federal Reserve Chairman Ben S. Bernanke pledged the central bank will provide more stimulus if necessary to revive the economy.
"Personal income is important here because the average consumer is really struggling with a lot of debt," said Bruce Bittles, chief investment strategist at Milwaukee-based Robert W. Baird & Co., which oversees more than $85 billion. "The pessimism in the market has gotten pretty acute."
The S&P 500's decline was led by financial and consumer discretionary stocks, with gauges of both industries falling at least 1.7 percent. Bank of America Corp. and Intel Corp. slid more than 2.2 percent to help pace losses in the Dow Jones Industrial Average. Citigroup Inc. fell 2.4 percent after Credit Agricole Securities' Mike Mayo, one of three analysts with a "sell" rating on the stock, said he had doubts about the bank's trustworthiness because senior management hadn't met with him in almost two years.
Income, Spending Data
Commerce Department data also showed that disposable incomes, or the money left over after taxes, dropped for the first time since January after adjusting for inflation, showing how the lack of jobs may prevent consumer spending from strengthening further after purchases rose 0.4 percent in July, the most since March.
The data overshadowed a continuing increase in takeovers. Announced global mergers and acquisitions have totaled $1.34 trillion so far this year, 25 percent more than during the same period last year, according to data compiled by Bloomberg.
Intel, the world's biggest chipmaker, slumped after agreeing to buy Infineon Technologies AG's wireless unit for about $1.4 billion. Sanofi-Aventis SA opened the door to a hostile bid for Genzyme Corp. after going public with an $18.5 billion cash offer for the U.S. company. Posco, the third- biggest steelmaker, agreed to acquire South Korean trader Daewoo International Corp. for 3.37 trillion won ($2.8 billion) to expand raw material resources.
European Stocks
The Stoxx Europe 600 Index slipped less than 0.1 percent after rising as much as 1.2 percent earlier. U.K. markets were closed for a holiday. Zodiac Aerospace SA jumped 10 percent in France after La Tribune reported that Safran SA is preparing another bid for Europe's biggest maker of airplane seats. Safran fell 2.3 percent.
U.S. Treasuries headed for a fifth monthly gain amid mounting concern the economic rebound is faltering. Morgan Stanley revised its forecast for second-half growth to a range of 2 percent to 2.5 percent, down from an earlier estimate of 3 percent to 3.5 percent.
German bonds are headed for their best monthly returns in almost two years. The yield on the 10-year bund slipped 7 basis points to 2.14 percent, near a record low of 2.09 percent reached on Aug. 25.
Yen's Strength
The yen's advance today came amid speculation the Bank of Japan's decision to increase credit-easing measures won't be enough to weaken the currency as it heads for a fourth straight monthly advance versus the dollar. Prime Minister Naoto Kan said the nation is preparing a 920 billion yen ($10.8 billion) stimulus plan and the central bank added 10 trillion yen in liquidity injections.
The Japanese currency strengthened to a 15-year high of 83.60 per dollar last week and has rallied 11 percent since the beginning of May as investors seek assets considered the most safe and unwind bets made with borrowed yen amid concern the global economic recovery will falter. The dollar gained 0.7 percent against the euro to $1.2673 after Bernanke pledged Aug. 27 to safeguard the recovery.
Emerging Markets
The MSCI Asia Pacific Index climbed 1.3 percent, the most since Aug. 2. The MSCI Emerging Markets Index rose 0.2 percent, with benchmark gauges in China, South Korea and South Africa climbing more than 1.5 percent.
Copper for delivery in December climbed as much as 2.2 percent to $3.46 a pound on the New York Mercantile Exchange, the highest since April 27. Oil fell 0.6 percent to $74.70 a barrel in New York, after rallying 2.5 percent on Aug. 27 when Bernanke made his statements.
Bernanke last week said the central bank "will do all that it can" to ensure a continuation of the economic recovery, and outlined steps it might take if growth slows.
"Consumer spending may continue to grow relatively slowly in the near term," he said Aug. 27 at the Kansas City Fed's annual monetary policy symposium in Jackson Hole, Wyoming.
The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, climbed 1.9 basis points to a mid-price of 112.91 basis points. The index typically rises as investor confidence deteriorates and declines as it improves. Swaps on 3M Co. and Rio Tinto Group rose.
Wheat for December delivery advanced 1.4 percent to $7.045 a bushel on the Chicago Board of Trade, paring an earlier gain of as much as 4.9 percent, as Russia's export ban for the grain and rain that hurt the quality of crops in Germany boosted demand for U.S. supplies. Corn for delivery the same month rose 1.3 percent to a 14-month high of $4.415 a bushel as dry U.S. weather threatens to reduce yields in the world's biggest grower of the grain.
To contact the reporters on this story: Kelly Bit in New York at kbit@bloomberg.net Stephen Kirkland in London at skirkland@bloomberg.net
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